A Regulatory Break for Ethanol

Earlier this week, the EPA decided against pursuing an appeal of a federal court decision that curtailed the ability of the EPA to grant exemptions to oil refineries regarding legislatively mandated amounts of ethanol to be included in their refined products.  Rather, the EPA is expected to follow the ruling of the 10th Circuit nationwide.  This should provide some needed relief for a US ethanol industry reeling from the recent precipitous drop in the overall demand for fuel.

The legislation in question mandating ethanol usage was passed in the mid-2000s.  The EPA is charged with implementing these laws through the issuance of regulations and in certain cases granting exemptions.  The EPA’s exemption authority includes granting temporary exemptions for small refineries if compliance in a given year would impose disproportionate economic hardship.

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In January, the Federal 10th Circuit Court of Appeals, in Renewable Fuels Ass’n v. United States EPA, (948 F.3d 1206), held that the EPA abused its discretion in granting exemptions to three small refineries located in Oklahoma, Utah and Wyoming, respectively.

In the months leading up to the decision, the EPA had been criticized in certain circles for taking liberties with its authority by granting exemptions to refineries that were neither small nor suffering hardship and often doing so in a manner that stretched the meaning of the word temporary.

The Court’s ruling applies to the 10th Circuit jurisdiction (Colorado, Utah, Wyoming, Kansas, Oklahoma and New Mexico).

The EPA had indicated that it would not follow this ruling in other Circuits.  The EPA was expected to appeal the ruling of the 10th Circuit and had filed for an extension of time to prepare its appeal.

However, the economic devastation left in the wake of coronavirus preparedness measures has caused the Administration to change its point of view.  On Monday, Bloomberg reported that the EPA will now apply that 10th Circuit Court of Appeals ruling nationwide, so that just a handful of U.S. refineries remain eligible for the valuable small refinery exemptions.

Part of the impetus for the Administration’s change of mind is that the recent economic shutdown has delivered a staggering blow to the ethanol industry.

Ethanol demand and prices move with the market for motor-fuels.  Due to coronavirus preparedness, gasoline consumption is anticipated to remain about 20% below average for several months.  Reduced gasoline consumption will result in a commensurate reduction in the use of ethanol.

About Chris Donnelly

Christopher J. Donnelly, is an experienced attorney, bond analyst and fixed income strategist, with years of experience in structured finance, distressed bonds and bond related litigation in a variety of industries and the emerging markets. He is a graduate of Rutgers University (BA), The University of Pennsylvania (JD) and New York University, (LLM in Taxation). Chris is a Managing Director of Straacom, LLC and can be contacted at cdonnelly@straacom.com. Straacom provides strategic research, analysis and communications for publication and on assignment for private clients.

3 comments

  1. Ethanol is a cancer gifted to us by the America hating leftists.

  2. So the boondoggle giving ethanol a government-mandated market against market demand has been strengthened. I’m disappointed in the Administration’s lack of respect for the market.
    .
    It’s not a direct subsidy, but it is a distortion of the market. It’s more of a favor for the ethanol lobby than it is to combat ‘global warming.’
    .
    Crony Politics from The Swamp again.

  3. Ethanol does not reduce the consumption of oil, it makes our fuel less efficient, causing us to burn more of it.
    According to government statistics, when the ethanol mandate was put in place back in 2007 – 2008, the consumption of gasoline increased while the total miles driven in the united states decreased.

    The real reason for the mandatory ethanol dilution of fuel is to redistribute wealth to corn farmers. It does nothing positive for our environment or our dependence on foreign oil.

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